Download or read book Oligopolistic Price Competition and Adverse Price Effect in Online Retailing Markets written by Sulin Ba and published by . This book was released on 2017 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: The majority of theoretical vertical differentiation models in the literature derive equilibrium prices that exhibit what we call an “adverse price effect:” for a low quality firm, the equilibrium price may decrease when the product quality increases. This seemingly counterintuitive theoretical result has received little attention in the literature. In order to check whether this result is simply an artifact of model assumptions (such as a duopoly under absence of differentiation costs), we present an oligopoly model with a general cost structure, and derive closed-form solutions for two special cases. Our model shows that the adverse price effect continues to hold in a more general setting and we derive conditions under which such an adverse price effect occurs. We then attempt to find empirical evidence of this phenomenon using data from the online retailing (e-tailing) industry where e-tailers selling identical products mainly differentiate with their service offerings. Our analytical and empirical results offer guidelines to e-tailers on how to price their products and decide their service offerings. The results may also have implications for firms in other industries that are characterized by vertical differentiation.